Cochlear hit after profit downgrade
The downgrade by Cochlear is the latest blow for Australia's listed healthcare sector after drug maker Pharmaxis was shunned by investors after its cystic fibrosis treatment failed to clear critical regulatory hurdles to enter the US market.
Cochlear warned its net profit for the year to end-June would be in the range of $130 million to $135 million.
The market had been expecting a range of between $146 million to $164 million.
The news wiped about $665 million from Cochlear's market capitalisation as the shares closed down $11.66 or 18.1 per cent.
The stock's close of $52.88 was Cochlear's lowest finish since November 2011.
Cochlear chief executive Chris Roberts attempted to shore up confidence in the company's position, telling analysts the company's final year dividend would be "at least" $1.25 per share. He also blamed slower market growth in its biggest market, the US, which generated more than 42 per cent of the company's revenue in 2012.
But analysts said reasons for the downgrade were not entirely explained during the briefing.
"I don't think those two points fully reconcile with the whole. There's a hole there that seems larger than those two elements would otherwise explain," Wilson HTM's Shane Storey said.
The profit downgrade comes as the company begins its launch of the new hearing-aid software, Nucleus 6, which has been approved in Korea and Canada, but is still awaiting regulatory approval in the US and Europe.
The Nucleus 6 is an upgraded processor, not an actual implant (there are two parts to an implant system: the device that is surgically implanted, and the processor, which is the software device that sits behind the ear).
Mr Storey said Cochlear was struggling with a tired product range. "I think that's probably the secret to why their market share is falling in major markets and why the business finds itself increasingly focused on emerging markets where you don't get premium pricing," he said.
Cochlear, which dominates the global market for hearing implants, says sales since January had been weaker as the company waited for approval to sell its Nucleus 6 in the US and Europe.
Frequently Asked Questions about this Article…
Cochlear revealed a disappointing full-year profit downgrade, warning net profit for the year to end-June would be $130–$135 million versus market expectations of $146–$164 million. The result wiped about $665 million off its market capitalisation and the shares closed down $11.66 or 18.1% at $52.88.
Cochlear guided net profit of $130–$135 million for the year to end-June, while the market had been expecting $146–$164 million, leaving the company below the lower end of analyst forecasts.
Cochlear's CEO pointed to slower market growth in the US — which accounted for more than 42% of the company's revenue in 2012 — and weaker sales since January while awaiting approvals for its new Nucleus 6 processor. However, analysts said those explanations did not fully reconcile the size of the downgrade.
Analysts, including Shane Storey of Wilson HTM, suggested the briefing did not fully explain the downgrade and noted Cochlear appears to be struggling with a tired product range, which may have contributed to falling market share in major markets and greater focus on lower‑margin emerging markets.
Nucleus 6 is an upgraded processor (the external software device that sits behind the ear), not the surgically implanted device. It has been approved in Korea and Canada but is still awaiting regulatory approval in the US and Europe as Cochlear begins its launch.
Cochlear's CEO Chris Roberts told analysts the company's final year dividend would be at least $1.25 per share, indicating a commitment to maintain a dividend despite the profit downgrade.
The downgrade came amid broader weakness in Australia's listed healthcare sector. The article notes drug maker Pharmaxis was also shunned by investors after its cystic fibrosis treatment failed to clear critical regulatory hurdles to enter the US market.
Key takeaways from the article: the market reacted sharply to a profit downgrade that missed expectations, regulatory timing for new products (like Nucleus 6) can materially affect sales, the US market is a major revenue driver for Cochlear, and analysts are concerned underlying product competitiveness may be an issue. Investors should watch regulatory approvals, product launches, and management commentary for further clarity.
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